U.S. securities regulator should demand more voting disclosure from fund managers: official

WASHINGTON (Reuters) - The U.S. securities regulator should consider imposing stricter disclosure requirements on institutional fund managers relating to how they vote in corporate elections, a Securities and Exchange Commission (SEC) official said on Thursday.

FILE PHOTO: A general exterior view of the U.S. Securities and Exchange Commission (SEC) headquarters in Washington, June 24, 2011. REUTERS/Jonathan Ernst/File Photo

The growing power of passive index funds in corporate elections posed governance and investor-protection concerns, with most investors unaware of how fund managers vote on their behalf, SEC Commissioner Robert Jackson said at an inter-regulatory audience of the Federal Trade Commission.

“There are serious investor protection and corporate governance issues that are implicated by the common ownership of stocks by a handful of institutional index fund managers,” Jackson said at the gathering at New York University’s School of Law.

“Each year, institutional investors cast votes in corporate elections on behalf of more than 100 million American families, wielding significant power in the future of our companies and communities,” he added.

Jackson, a Democratic commissioner who was sworn in at the SEC in January, said investors did not get enough useable information about how fund managers vote on matters regarding their money and consequently, they cannot hold those managers accountable for how they vote in those elections.

“It’s time for that to change.”

Jackson’s comments are likely to intensify a broader debate over corporate democracy in the United States which has heated up in recent months.

Industry groups are pushing the SEC to overhaul its rules on how shareholders are able to vote on special issues like climate change and diversity, while investors worry any changes will undermine their ability to hold company managers to account.

Citing recent academic research, Jackson, a professor who is on public service leave from the New York University’s School of Law, said institutional investor voting patterns fall into three distinct camps and investors ought to be aware of the distinct biases when deciding which funds to park their money with.

Jackson has become a persistent voice for investor protection issues at the regulator, pushing for change on other issues such as voting rights and stock exchange fees and competition.